The government is on track to meet its budget deficit target of 5.6 percent of gross domestic product (GDP) in 2010 and is set for further budget consolidation in 2011, two government sources told Reuters .

A successful budget consolidation in 2010 and 2011 would put the country on track to achieving its target of a deficit of 2.5 percent of gross domestic product by 2015 and shift away from several years of growing fiscal deficits.

The two government sources had direct knowledge of the issue but could not be named due to the sensitivity of the issue as Prime Minister Najib Razak is due to present the

budget on Friday.

"We are achieving our budget deficit target of 5.6 percent (of GDP) this year because the government has taken some cost cutting measures. It puts us on track for a lower target in

2011," one of the sources said on Tuesday.

A deficit of that level this year would be in line with analyst expectations in a Reuters poll on Tuesday that forecast the deficit in 2010 would be 5.4 percent of GDP and 4.5 percent

of GDP in 2011.

"It was also indicated that the GDP growth target for next year will be conservatively around 6 percent. It could have been more but we are taking into account the economic uncertainties globally," said the second government source.

Malaysia is one of Asia's most trade-dependent economies and has seen demand for its exports rebound thanks to buoyant demand in Asia, although recent data shows the pace of growth in industrial production and exports is slowing.

Malaysia's budget deficit started to balloon even before the 2008 global financial crisis, prompting concerns about its credit rating, although those concerns will be reduced if

Malaysia manages a successful consolidation.

In July, Fitch maintained its "A" local currency rating for Malaysia with a stable outlook after a 2009 downgrade from "A-plus" due to concerns over the rising deficit.

- Reuters